W. Virginia bans STOLI plan settlement

West Virginia today passed legislation to prevent the settlement of stranger-oriented life insurance policies. The life settlement legislation, called S. 704, takes elements from model acts created separately by the National Association of Insurance Commissioners and the National Conference of Insurance Regulators. One portion of the rule puts a five-year moratorium on the settlement of STOLI policies, a measure that comes from the NAIC’s model act. Meanwhile, a second portion of S. 704 legally defines STOLI and identifies it as a fraudulent act — an element from NCOLI’s model. West Virginia is among the first states to enact the legislation. Legitimate life settlements involve having a policy owner sell an unwanted insurance policy to a third party who becomes the new beneficiary of the policy and who pays the premiums. However, in an abusive STOLI transaction, investors encourage seniors to buy life insurance policies exclusively to sell them the death benefits. Once the senior dies, the investor collects a profit. In most cases of STOLI, seniors who buy the policy have to mislead the insurance companies on their intent behind the purchase in the first place. “By adopting legislation that takes the best features from the NAIC and NCOIL models, West Virginia lawmakers have provided their seniors with the highest level of protection in the nation,” Frank Keating, president and chief executive of the American Council of Life Insurers said in a statement.